I am grateful to Robin Boadway, Charles Beach, David Byrne, Mike Hoy, Marcelin Joanis, Adnan Khan, Pierre Pestieau, Sumon Majumdar, Afrasiab Mirza, and James Thompson for helpful comments and discussions as well as and seminar participants at Queen’s University, the University of Alberta, Australian National University, Singapore Management University, Wilfrid Laurier University, Les Journées Louis-André Gérard-Varet (2010), and the Canadian Public Economics Group meetings (2010). I am especially indebted to the referees who provided excellent feedback and helped to substantially improve the paper. Email: eric.stephens@ualberta.ca

Abstract

Abstract In models of redistribution, differences in human capital are often the relevant source of heterogeneity among individuals. Presumably, the distribution of human capital can be manipulated through education spending. This paper examines the use of education as a redistributive tool when there is a non-linear tax system in place. The results show that taxation, whether under full or asymmetric information, substantially reduces the redistributive role of education spending in maximizing social welfare. This points to a conflict between the equalization of utility and human capital outcomes.